Germany refuses Greece an honourable surrender over austerity

Athens’ decision to accept a eurozone loan extension shows the troika did not really want to negotiate with Syriza - it wanted capitulation.

There is a phrase for what Germany is seeking to do to Greece: a Carthaginian peace. It dates back to the Punic wars when Rome emerged victorious in its long struggle with Carthage but refused to allow its opponent the chance of an honourable surrender. Instead, it enforced a brutal settlement, burning Carthage to the ground and enslaving those inhabitants it did not massacre.

A Carthaginian peace is what is being offered to Alexis Tsipras. On Thursday, the Greek prime minister made it clear that he was willing to see the white flag of surrender flutter over Athens. He accepted that he would have to swallow most of the conditions demanded of him by Greece’s eurozone partners but asked for a few concessions to sugar the pill.

Wolfgang Schaeuble, Germany’s finance minister, immediately slapped Tsipras down. What Greece was proposing was unacceptable, Schaeuble said. Unless the Germans are bluffing, and there’s nothing to suggest that they are, it leaves Greece with a binary choice: abject surrender or going nuclear.

Abject surrender means that Tsipras would have to explain to the Greek people why he was abandoning the policies on which he won the election less than a month ago. Going nuclear would involve capital controls, fresh elections on a “who governs Greece” basis and possible exit from the single currency.

Tsipras occupies both the moral and intellectual high ground going into Friday’s talks in Brussels.

In its pitch to the other 18 eurozone members, Greece has formally asked for a six-month extension to its bailout agreement. There is no longer the pretence that the bailout should be replaced by a loan agreement with no strings attached. The hated troika of the European Central Bank (ECB), the European Union and the International Monetary Fund will be monitoring Greece’s economy for the next six months, something that has been anathema until now.

The Greek government has modest demands of its own. It wants to negotiate a new growth deal for the four years until 2019. It is asking for debt relief under the terms of the November 2012 bailout agreement, and it wants to be able to take steps to deal with the humanitarian crisis caused by the 25% collapse in the size of the economy over the past five years.

None of these demands are unreasonable. Indeed, they are all entirely sensible. As Dhaval Joshi of BCA Research has noted, for every euro the Greek government has saved through spending cuts or tax increases, the economy has contracted by €1.20. Austerity has resulted in Greece’s debt to GDP ratio going up, not down. A change of tack is overdue. But Germany’s response to Greece was simple: stick to the existing programme no matter what the voters want.

Tsipras has two big weaknesses. Firstly, Greece is suffering from capital flight and is dependent on emergency support from the ECB for its banks. The ECB has just increased its funding, but not by as much as Greece would have liked. The life support could be cut off at any time.

Secondly, and perhaps more significantly, Greece has failed to deploy its most potent weapon – a threat to leave the euro. For all the talk in Brussels and Berlin that the single currency could withstand a Greek departure, the threat of withdrawal would have put the frighteners on. Would the euro group really want to risk chaos, given the shaky state of the economy? No. Would Angela Merkel want to go down in history as the German chancellor responsible for rolling back more than half a century of European integration? Again, no.

So Tsipras should tough it out. He should reject the cosmetic concessions that will be offered and say that the deal on offer is not acceptable to the Greek people. Politically, this does not look much of a risk. If he accepts a Carthaginian peace he is finished.